Platform
SALIENCE
Operational Risk · Measurement & Management
The Problem
Factor risk models require prices.
Private companies don't have a price history.
Risk models are essential to successful investing, but traditional factor risk models depend upon a price history that doesn't exist for private companies. Yet risk doesn't originate in the price histories. It originates in the revenue activities of a business, and then amplifies or dampens as it propagates through earnings, valuation, and operating cash flow. Salience measures and forecasts this risk using a small set of readily available data.
Salience is the first practical risk model for private companies.
Capabilities
What Salience does
Risk Models & Salience
Factor models rebuilt institutional investing by decomposing risk from years of daily returns, but thirty-three million private businesses have no price history to factor. Salience rebuilds the risk model from operations: it decomposes revenue variance into how many revenue events arrive and how large each one is, giving count risk and size risk which compose into revenue variance.
▶ Watch the introductionThe Salience Cascade
Revenue variance cascades through expense variance into earnings variance. Earnings then forks on one side through a valuation model into valuation variance. On the other side it cascades through working capital into operating cash flow variance and finally into probability of debt covenant breach. Salience traces the full cascade from top-line volatility to bottom-line impact.
▶ Watch the animated cascadeValue Creation
Trace every point of EBITDA variance to both the business line and operational source that produced it. Variance that is measured and assigned can be managed and reduced. Reducing variance increases the quality of earnings and increases the multiple of the business, all other things being equal. Twenty years of data testing S&P 500 company earnings variance against price-earnings multiple bears out this relationship. Salience gives operators and investors a new type of alpha to deliver.
▶ Watch value creationPerformance Tracking
Watch the quarter arrive against its predicted variance band. When an actual lands outside the band it is no longer noise. Salience attributes the gap and turns the quarterly business review into what happened, why, and what to do next.
▶ Watch performance trackingPortfolio Construction
A fund is more than the sum of its companies. Salience aggregates company-level variance into a fund CV, ranks each holding by its marginal contribution to risk, and steers follow-on capital to cut expected distress; turning a book of private positions into a managed risk portfolio.
▶ Watch portfolio constructionPrivate-Credit Lending
Lend against illiquid founder equity or fund NAV with the valuation distribution itself as collateral. Salience sizes the loan-to-value advance from the distribution’s downside quantile and prices the tail hedge off the same cascade CV. Lenders get insight into sources of variance and can adjust pricing over time.
▶ Watch the lending facilityDownloads
Read the method
Salience: A Better Way to Measure & Manage Business Risk
A book-length development of the Salience method — from first principles through the complete risk model. The full treatment for readers who want to measure and manage business risk in depth.
A Measured Quantity of Risk
A short brief for GPs: where a company’s uncertainty originates, how it propagates to enterprise value and to cash flow, and what a dollar of risk reduction buys — in the language of risk-adjusted return your limited partners already speak.
Who It Serves
Four audiences. One platform.
Operators
Mid-to-large businesses
- Measure sales, earnings, and valuation budget variance with statistical precision
- Measure ability to service debt with statistical precision
- Identify sources of variance across business lines
- Track forecast accuracy and improve over time
- Improve responsiveness, reliability, and alignment across the firm
General Partners
Private-equity fund managers
- Measure where each portfolio company’s uncertainty originates
- Report risk-adjusted return in the language LPs already speak
- Track value creation plans and earnings quality across the book
- Price and hedge downside on concentrated positions
- Monitor company forecasts against their variance bands
Limited Partners
Fund investors
- Compare managers on measured risk, not returns alone
- Comprehensive risk dashboard across all private equity exposures
- Consistent reporting across all funds
- Distinguish genuine diversification from correlated names
- Hold GPs to a consistent, auditable risk standard
Lenders
Credit against private value
- Lend against founder equity or fund NAV on one engine
- Size loan-to-value from the collateral’s value distribution
- Set advance rates by tail probability, not rule of thumb
- Price a tail hedge off the same volatility estimate
- Monitor margin-call and covenant-breach risk over the term